Lenders, insurers to benefit from housing reform: Goldman

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SAN FRANCISCO (MarketWatch) — Mortgage lenders and insurers stand to benefit from proposals to reform bailed-out mortgage giants Fannie Mae and Freddie Mac, analysts at Goldman Sachs said in a note Monday.

Reduced government support for Fannie
FNMA, +0.36%
and Freddie
FMCC, -0.37%
“should help level the playing field,” leading to better lending spreads and more opportunities for profits, the analysts wrote.

A blueprint for Fannie and FreddieKey points
in Treasury's menu of reform options:

Cut size of Fannie, Freddie portfolios by 10% a year

Raise fees charged for mortgage securitization guarantees

Reduce size of mortgages firms can buy to $625,000 and below

Phase in rule that firms can only buy loans with 10% down
payment

Raise FHA mortgage insurance fees

Three options for long-term reform, including quazi-privatization

On Friday, shares of mortgage insurers and the largest U.S. consumer banks rallied after the Obama administration unveiled reform proposals that included far smaller roles for Fannie Mae and Freddie Mac in the mortgage-financing business, potentially freeing up more business for the private sector.

Goldman analysts estimated the implicit subsidy to mortgage rates, under the current system, at 60 to 100 basis points. “While higher rates could decrease origination volumes, growth should still outpace balance-sheet availability,” they said.

Besides lenders, mortgage insurers are also potential beneficiaries, according to Goldman.

“The stated goal of returning the [Federal Housing Authority] to its traditional role as a targeted lender of affordable mortgages supports the view for better-than-expected private market top-line growth,” the analysts wrote.

Among its proposals, the Treasury recommended a gradual increase in down payments required for mortgages guaranteed by Fannie and Freddie. It also recommended the Federal Housing Administration raise the fee borrowers pay for insurance on FHA-backed mortgages. Read more about the proposals

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